Thames Water lobbied officials for higher bills

Pressure put on government to make Ofwat allow big increase

- Anna Isaac

Thames Water has lobbied the government to intervene with the regulator to allow it to charge far higher bills, the Guardian can reveal.

Advisers and board members of the heavily indebted water company are understood to have met Whitehall officials in recent weeks to argue that allowing it to be temporarily renationalised would have a "chilling effect" on Britain's appeal to international investors, sources familiar with the discussions told the Guardian.

Thames is one of the biggest challenges facing the new Labour administration, after the company was brought to its knees by sewage scandals, fines and huge debts. Its attempt to persuade the government to put pressure on Ofwat is the latest tactic in an increasingly desperate scramble to repair its threadbare finances and avoid being pulled on to the state's balance sheet.

This week Thames demanded the watchdog allow it to increase bills by 59% - an average of £228 a year-for its 16 million customers across London and the Thames valley.

The call for the government to intervene and potentially overrule Ofwat risks bringing into question the watchdog's independence. The body was created in 1989, when Britain's water and sewage services were privatised by Margaret Thatcher's government, in order to set limits on the amounts regional monopolies could charge consumers.

In crisis talks with civil servants, members of Thames's board of directors and advisers have suggested that if it runs out of money and is put into a so-called special administration regime temporarily bringing it on to the government's balance sheet - it could cause damage to the entire water sector and the wider UK infrastructure market. They are understood to have argued that the contagion from temporary renationalisation would drive up the cost of capital for all water companies seeking funds.